Risk Washing

by Rick Nason, PhD, CFA

Partner, RSD Solutions Inc.

www.RSDsolutions.com

info@RSDsolutions.com

 

Going through the week’s mail I received the one of the few annual reports that I elect to receive from one of the companies that I invest in.  Yes – I am one of those old fogeys that still occasionally looks at them in hard copy form. 

 

As I tell my students, the only sections that I look at are the MD&A and the notes.  I found the notes were particularly interesting in this one annual report I received this week.  They are interesting in that there is an incredible amount of detail on the company’s risk management policies.  It explains all of the risk management strategies they have in place – stopping just short of describing the risk management practices in place for when the “C” level officers clip their toe-nails.  It is truly overkill.

 

It got me to thinking about what the objective of all this risk reporting is.  While it is great that companies are taking risk reporting seriously, there is also the possibility of too much of a good thing.  You can refer back to my article “Is Your Risk System Too Good?” in the RMA Journal (http://www.rsdsolutions.com/quotis-your-risk-system-too-goodquot-article-rick-nason-published-rma-journal).

 

The only reasonable rationale that I could come up with for so much risk reporting was “risk-washing”.  With all of the emphasis on risk awareness and risk preparedness, I can only assume that this company wants to be seen as a leader in risk management.  However just as companies that try too hard to be seen as being environmentally friendly get accused of “green-washing”, it may be the case that we will start to see companies “risk-washing”.

 

Venture Capital

by Rick Nason, PhD, CFA

Partner, RSD Solutions Inc.

www.RSDsolutions.com

info@RSDsolutions.com 

 

As part of my preparation to teach a seminar on advanced investment techniques, I have been reading up on what the latest is in the field of venture capital.  In going through old interviews and notes I had compiled the one thing that struck me about venture capitalists that being their desire to have someone leading the company who is flexible.  Every venture capitalist hates to have someone who is overly passionate about an idea.  An overzealous entrepreneur is likely someone who will not be willing to change course when things inevitably do not go as planned.  It is considered far better from the VC’s point of view to have someone who has a general idea, rather than a fully articulated plan that they are determined to stick with through thick and thin.

 

I believe there is a lesson here for risk managers.  As a profession we tend to be like over-planned overzealous entrepreneurs who demand to have every detail thought out in advance.  While planning is obviously a necessity, it is possible to over-plan.  It is also possible to be overly committed to a plan.  That goes for a business plan or for a risk plan.  Things will happen.  Things will change.  Assumptions will prove to be incorrect.  Economic shifts will happen.  When the inevitable happens, commitment to a plan can be just as costly as not having had any kind of plan at all in place.  Just like a venture capitalist, you need to learn to know when and how to be flexible.

 

Now if we could only get regulators to understand that point. 

Dangerism

By Rick Nason, PhD, CFA

Partner, RSD Solutions Inc.

www.RSDsolutions.com

info@RSDsolutions.com 

 

Just finished reading the very interesting TED book “Beware Dangerism” by Gever Tulley.  http://tinyurl.com/6me2gww

 

A lot of interesting ideas in this very short book.  The central thesis is that kids need to be protected from overprotective parents so they can learn how to deal with risk.  Perhaps there is a corporate analogy to Dangerism, in that companies need to be protected from overzealous regulators and risk management systems so they can learn to deal with risk!

Spray and Pray

by Rick Nason, PhD, CFA

Partner, RSD Solutions Inc.

www.RSDsolutions.com

info@RSDsolutions.com

 

 

This week I had my photo shoot for a speaker series that I am participating in.  Each professional photographer has a different style – each of which seems to be more annoying than the previous one.  The photographer this week however was different.  He came into my office, sat himself down and talked to me.  No rushing to get lights set up – no running around the room with a light meter – no assistant with a make-up kit.  Yes – he did set up lights, yes he did check light levels, no he did not apply make-up to my ugly mug (probably should have).  But he did talk.  He engaged me in a conversation.  Occasionally while talking he would take a photo or two.  But the number of photos was minimal.  Then after about 20 minutes of conversation and about a dozen photos he thank me for my time and said he was done!  I was shocked!  What?!  Only a dozen photos or so.  I was expecting at least 5 times as many shots. 

 

As he was leaving I asked him why so few photos.  His response was very telling.  He said, “I believe in understanding my subjects.  When I do that I only need a few photos to get a great shot.  I don’t need to spray and pray like other photographers”.

 

Interesting.  He actually tries to understand his subjects as people so he can take better photos. 

 

What about risk managers?  Do we “spray and pray” with our vast amounts of modeling and analysis and data collection, or do we try to understand the people in our organizations and thus need only a fraction of the data that we normally collect and analyze?

TED

by Rick Nason, PhD, CFA

Partner, RSD Solutions Inc.

www.RSDsolutions.com

info@RSDsolutions.com

 

Some of you – hopefully all of you - may be familiar with TED talks.  If not, go to www.TED.com right now.  You are in for a treat.  TED talks are of course are a series of talks by interesting people on interesting subjects.  They are short, they are impactful and they are to the point. 

 

TED stands for technology, entertainment and design.  The theme of non-profit TED is “ideas worth spreading”.  There are hundreds (if not over a thousand) TED talks that are available for free at TED.com.  All the talks are short (20 minutes or less), and cover a fascinating range of topics.  A great way to spend some quality time with your computer.

 

I recently searched for “risk” and “risk management” on the TED site.  Came up with nothing.  It appears that risk managers are either just not dynamic enough or interesting enough or into technology, entertainment or design.  Although it is a TEDx talk, (emphasis on the “x”), I hope to change that.  www.tedxhalifax.ca  

Benevolent governments let us keep some of our earnings!

by Stephen McPhie, CA

Partner, RSD Solutions Inc.

www.RSDsolutions.com

info@RSDsolutions.com

 

Over the weekend, I heard the UK government minister who is number 2 in the treasury, argue that a certain tax deduction for pension contributions should be limited as this would save the government significant expenditure.  This is the first time I have heard a tax increase effectively described, not as a tax increase, but as a reduction in government spending.  The logical extension of this is that any tax rate below 100% is government expenditure.  In other words, the government is entitled to everything you earn and is incurring an expense in giving some if this back to you.  How generous of them!

 

At the same time, while there used to be a clear distinction between tax avoidance (legal) and tax evasion (illegal), politicians are now describing the former as being part of the latter; at least morally.  (Somehow I got the words “politicians” and “morally” in the same sentence!)  We keep getting told how many billions in tax large companies and rich people are stealing from us.  Of course there is no explanation of the nature of the amount of tax avoided, or whether or not such deductions are desirable.  Is it deductions for capital expenditure for example?  Or R&D?  Or is it all more about votes with little regard for substance or truth?

 

Is political spin spinning dangerously out of control?  More importantly, are you examining your tax risk?  Cash strapped governments may be keen to trumpet lower or stable headline rates out one side of their mouths, but what they giveth with the right hand ……

Faces

by Rick Nason, PhD, CFA

Partner, RSD Solutions Inc.

www.RSDsolutions.com

info@RSDsolutions.com

 

Faces are complex.  Recognizing a face is a very difficult task for a computer – much more difficult than recognizing your retina.  Faces convey a ton of information.  They convey emotions.  They also convey understanding or lack of understanding.  Faces are complex (not complicated) and thus are not easily codified.  That is why a computer cannot easily deal with them.

 

Scientific studies have shown that we pay up to 8 times more attention to faces than to objects.  I think that is interesting in a world where faceless social media is so prevalent. 

 

Now, here is a question – do risk managers pay more attention to faces or to data?  Ha!  There is not a single risk management Master’s program anywhere that talks about the importance of faces (or the importance of people for that matter).  A long time ago in this blog series, I blogged about risk management by walking around (RMBWA).  We need more risk managers to manage by reading and understanding faces.  Let the computers take care of the data – let the humans take care of the humans.